The price of gold fell to a two-month low today on a stronger than expected US employment report.
The consensus forecast was for the US economy to add about 125,000 non-farm jobs in October. The actual figure was 170,000. This boosted confidence in the US dollar, which took its natural toll on the price of gold, which fell below $1,700 per ounce.
The reason that this is such a good buying opportunity for investors is that usually gold reacts positively to signs of strength in the US economy. But because so many people are concerned about the US dollar, any good economic news creates speculation that more monetary stimulus may be unnecessary.
Many economists share a different view.
They believe that the existing monetary stimulus is not in fact “working” and thus not responsible for the stronger than expected employment report.
Moreover, the conditions that truly have created a long-term crisis in the dollar are America’s monetary and fiscal policies combined. With annual federal budget deficits of $1 trillion on top of the already gargantuan federal debt of nearly $17 trillion, the world is already awash in dollars it does not want. Couple this with years of low interest rates and a weak dollar is inevitable.
One positive employment report doesn’t change that, it merely creates a correction that represents a great buying opportunity for gold investors.